Greece’s Botched Rescue Is Frustrating, Lipsky Says

Nov. 1 (Bloomberg) -- Efforts to rescue Greece have failed
to provide the basic structural reforms needed to help bring
competitiveness to its economy, said John Lipsky, the
International Monetary Fund’s former first deputy managing
director.

“It has been frustrating because some of these have been
clear from the outset in so many ways,” Lipsky said in an
interview in Copenhagen yesterday. “I feel this process could
have been handled so much better.”

Europe is pressuring Greece to step up efforts to rein in
its deficit and deregulate the economy. The austerity measures
are exacerbating the nation’s economic pain and won’t lay the
foundation for a lasting recovery, Lipsky said. Greece is
complying with the terms set by euro-zone leaders in the hope of
getting a 31 billion-euro ($40 billion) aid payment this month
to help recapitalize its ailing banks.

“It has been so frustrating to see how little the
discussion has centered around what are in fact the underlying
issues, the truly seminal issues, for Greece, which have been
its progressive loss of competitiveness in the euro zone,”
Lipsky said. “If that can’t be remedied, there will be no
successful solution for the Greek economy, one way or another.”

Trade Barriers

Greece, which faces a sixth year of recession, needs to
remove trade barriers and become more export-oriented to have
any hope of returning to growth, according to Lipsky.

The yield on Greece’s benchmark 10-year note rose 14 basis
points to 17.909 percent, widening the spread to similar-maturity German bunds to 16.5 percentage points. The euro
slipped 0.2 percent against the dollar to trade at 1.2937 as of
9:45 a.m. in London.

“When you look at the very limited degree, the
astonishingly limited amount of foreign trade in Greece’s gross
domestic product, considering the tiny size of the country, you
realize one way or another that special interests have been
successful in keeping the Greek economy out of the single
market,” he said. “That needs to be remedied and that requires
acting effectively against, among other things, the special
interests, protective markets, quasi-monopolies, inefficient
state enterprizes.”

The government of Prime Minister Antonis Samaras wants two
more years until 2016 to meet targets for narrowing the deficit,
a concession that would create additional funding needs on top
of 240 billion euros in aid pledged to the country since 2010.

Debt Payment

With 5 billion euros of 13-week Treasury bills expiring on
Nov. 16, the Samaras government has been negotiating with the
euro area and the IMF over the steps needed to qualify for the
release of loan instalments frozen since June. Meanwhile,
unemployment in Greece has reached 25 percent.

The Greek government said yesterday the economy will shrink
4.5 percent in 2013, compared with an Oct. 1 estimate for a 3.8
percent contraction.

“I am always pained by the characterization of the issue
as one of growth versus austerity, as if that were the issue of
immediate consequence,” Lipsky said. “The issue is underlying
structural reform. If economies like Greece, Portugal, and
ultimately Spain and Italy, cannot recapture lost ground in
terms of competitiveness in the euro zone, it is hard to see how
they are going to achieve economic and financial success.”